Working smarter, not harder. (certified public accountants) (Management of an Accounting Practice)

by Marsh, Winston

Abstract- The Pareto principle stipulates that 80% of results are achieved from only 20% of the effort expended. Typically, this principle holds true for an accounting practice, where the majority of time is taken up satisfying the needs of clients who represent an insignificant portion of total of business. To counter this situation, an accounting practice may want to separate clients into three lists: the 'A' list of the the upper 20% of clients, and the 'B' and 'C' lists made up of the remaining 80% of clients. The latter two lists should differentiate between clients that have or do not have the potential to become major clients. Accountants should then maintain 'A' list clients, cultivate 'B' list clients, and disregard 'C' list clients.

If you are prepared to invest your time in activities that generate
results from the most potent section of your client base, then the
results you will generate will not be marginal but dramatic. The secret
lies in the Pareto principle.

The Pareto principle is very simple. It states that 80% of the
results achieved in business come from 20% of the efforts expended.
Many people are familiar with this formula, but not many make it work
for them.

In a typical accountancy practice, a mere handful of clients usually
generates the lion's share of the practice income and therefore the
profits. But who takes up most of the partners' time? Is it the small
group of large billing clients, or is it the large group of clients who
provide little by way of return except for constant demands for
attention and complaints about fees? In my experience, it always has
been the second group.

In the average supermarket, about 80% of the turnover, and
consequently 80% of the profits, are produced by about 20% of the items
on the shelves. The remaining items take up most of the shelf space,
but generate only about 20% of the sales. Does the little group of
sweetly selling products get the time and attention of the supermarket
staff? No, they are forever spending their time organizing, displaying,
discussing and chasing the large number of products that contribute so
little to the supermarket's bottom line.

Examples of Pareto could go on forever because Pareto happens in all
businesses everywhere. By the way, please don't take me to task for the
odd percentage point or two. Maybe in some businesses it's 76% of the
results in that are generated by 24% of the efforts.

And here's the rub. What would happen if people in business could
devote their time and effort only to those activities which produce the
results so instead they could spend 100% of their time on the really
productive matters. In other words, what would happen if they
multiplied their efforts by a factor of five?

While mathematics is not my strong point, it follows that if you
multiply the effort side of the Pareto equation by five you would need
to multiply the results side by the same number. Putting it simply, the
results will go up to 400%--an astronomical increase by simply
concentrating on the things that are important!

A useful activity for anybody in business then is to maintain a time
log over a week or two. In this log you should note exactly what you do
during your work time. Then you can correlate the use of your time with
what it produces in terms of results and income. Once you know the
activities that generate results and income, it's a simple matter to
concentrate on those activities and soon see a better bottom line.
Alternatively, if it's satisfaction you're after, do the same exercise
but correlate the time invested with the amount of satisfaction
generated.

Applying Pareto to Clients

The next step is to apply Pareto to your client base. The best way of
doing this is to identify that relatively small group of clients who
generate 80% of your results and divide them into two groups. In one
group you will have the clients who generate 50% of your business; in
the other group, the balance of clients who generae the other 30% (which
adds up to Pareto's 80%). Call these "A class" and "B class" clients
respectively. The rest of your clients (the 80% that produce 20% of
your business) are called "C class" clients.

Now divide your "B class" clients further into two subgroups. As
objectively as possible, decide which of these clients could grow if you
could devote more time to them. The rest will be clients whose business
you think will remain static. The clients with potential should then be
elevated to your "A class" list.

You now have three distinct client classes: "A class", who provide
around 50% of your business, and there will be a handful of these; "B
class", who provide around 30% of your business, and there will be a
greater number of these than there are "A class"; and "C class", of whom
you will probably have multitudes and who are the people that usually
take up a lot of your time but produce little result.

Having divided your clients into classes, consider the following
strategies for dealing with each class.

Love them to Death

"A class" clients are the ones that need your personal care and
attention. Your strategy should be to endeavour to "love them to
death". It is, of course, impossible to love clients to death, but you
should try. So far as is known to this writer no client has ever died
of too much attention. On the other hand, many have withered away
because of too little attention. "A class" clients should be loved
regularly, fervently and individually.

The way to tacke this is to set yourself specific objectives to
achieve in respect of each one of these clients during, say, the next 12
months. You can choose from a wide range of options. For example, it
may be your objective to visit each one at his or her office or factory
personally at least once every two months. Alternatively, you may want
to take each one out to lunch at least once a quarter, or you could
decide to provide them with a service or product which you don't
currently have.

You will find that your objectives list will be varied because what
you must do is carefully assess each client individually. Then, and
only then, decide what you are going to aim to achieve in respect of
that client.

You should have the same objective of "loving them to death" for your
"Class B" clients, but on a grop rather than on an individual basis.
"Class B" clients do not provide you with the same return for your time
investment, and so you should limit the time you devote to each of them
individually and proffer it to them in groups. This is how you multiply
the value of your time--one hour invested in one client can give you
only one hour's results; one hour invested simultaneously with 10
clients can give you 10 hours' results. So, for your "Class B" clients
you should set specific objectives that can work well for groups of
clients. Activities you should consider include seminars, briefings,
guest speakers, luncheons and dinners.

Get Rid of Them

Now, let's look at the "C class" clients. These are the people--and
there are many of them--that take up your time for little efffective
result. Unfortunately, you must be cruel to them to be kind to
yourself. You must either delegate them to someone else in your
business, sell them to one of your competitors or lose them. One of
these three options must apply.

I am sure that many of you will think that this is outrageous. Most
people in business have been brought up to believe that every client
they gather is important, no matter what the cost. This is just not
true. Sometimes the effort necessary to retain a client is not
worthwhile in terms of the result it produces. When this is the case
you have to be ruthless and let them go even if it goes against all that
you have been taught.

The best solution, however, is to delegate "Class C" clients to a
junior member of your staff. This usually works very well. It
motivates that person to perform well because of the responsibility with
which you have entrusted him or her and, as a bonus, you'll find that
some of these "Class C" clients grow because of the attention lavished
on them.

Remember, too, that when delegating clients you should always pass
them on with a ringing endorsement and recognition of your successor.
Make sure you explain to the clients that they are going to be handled
by somebody who has the skills and time to devote to them.

If you can't delegate, think about selling those clients off. No
doubt some potential "As" and "Bs" will be among them, but your business
will be going ahead in leaps and bounds if you concentrate on your good
clients, so it won't matter too much. It doesn't hurt to see a
competitor doing well either, and the money in the pocket would be nice,
too.

If neither of these two strategies is for you, then you should simply
let those clients know that you no longer have the resources to deal
with them. Whatever you do, remember to let them know. Don't let them
continue under the illusion that they are your clients if you are not
prepared to maintain some level of service to them.

And what will be the result of your efforts? Very simply, you will
have reduced the amount of time you normally expend in your business by
around 80% by merely removing about 20% of your business. If you can
devote the time you've saved to the "A" and "B" clients, you will see a
huge increase in your business and your results. The time you free up
by withdrawing your personal involvement with "C class" clients can now
be invested in more productive areas.

Winton Marsh specializes in communication and marketing. He writes
for and speaks to a wide range of audiences on these subjects, and is a
consultant in the marketing of professional and financial services.

The
CPA Journal is broadly recognized as an outstanding, technical-refereed
publication aimed at public practitioners, management, educators, and
other accounting professionals. It is edited by CPAs for CPAs. Our goal
is to provide CPAs and other accounting professionals with the information
and news to enable them to be successful accountants, managers, and
executives in today's practice environments.